Ta Ann’s 1Q15 results were in line. Maintain BUY with an unchanged SOP-based TP of MYR4.70 (24% upside). Although sales volume from the timber division fell, this was offset by higher prices as well as the impact of the strong USD/MYR exchange rate. The plantation division, however, suffered due to weak FFB production resulting from the wet weather in Sarawak in 1Q15.

In line. Ta Ann’s 1Q15 core net profit was in line with our and consensus expectations, at 25-27% of FY15 forecasts. It declared an interim net DPS of 10 sen (1Q14: 10 sen), in line with expectations.

1Q15 core net profit down 5.5%. 1Q15 core net profit fell 5.5% YoY on the back of a 4.9% rise in revenue. The timber division’s PBT grew 20% YoY in 1Q15, attributed to higher log prices (+5%) and the impact of the strong USD, offset by lower log sales volume (-18%), lower plywood sales volume (-1%) and lower plywood prices (-3.8%). The plywood division returned to the black this quarter, driven by higher Tasmanian Ecowood prices which rose 6% YoY. The plantation division’s 1Q15 PBT fell 92% YoY, as FFB production volume slid 3.1% YoY while CPO prices dropped 11.6% YoY.

Forecasts unchanged. We leave our earnings forecasts unchanged. We highlight that every MYR100/tonne change in CPO prices could impact the company’s net profit by 7-9% per annum, while every MYR0.10/USD change in exchange rate could affect its profit by 10-12% per annum.

Maintain BUY. Given the continued strength in log dynamics (stable demand and improving prices), profits from the plywood division, as well as growing palm oil plantation contribution, we maintain our BUY recommendation with an unchanged SOP-based TP of MYR4.70.

Source: RHB Research - 28 May 2015